The market has been bracing against the possibility of a sharp rise in interest rates because of the downgrade which was expected to make it more difficult for the government to raise funds through borrowings from both the domestic and foreign markets.
Deputy Treasurer Eduardo Mendiola said Treasury officials were themselves surprised by the auction results, especially after National Treasurer Sergio G. Edeza predicted a surge in T-bill yields this week.
"When there’s uncertainty, the market goes for the short-term T-bills," he said, explaining the oversubscription responsible for pushing rates lower.
At yesterday’s auction, the BTr made a full P4-billion award for the short-term bills against tenders of P8.775 billion. Aside from the shift to short-term bills, banks also tried to push longer-term yields higher as a direct consequence of last week’s S&P downgrade.
S&P’s downgrade brought its credit rating on the country’s long-term foreign currency sovereign credit rating by one notch from "BB+" to "BB" as well as its long-term local currency rating from "BBB+" to "BBB".
But the market’s reaction to the downgrade was mixed. As yields went down on the 91-day T-bills, the rate on the 182-day T-bill rate rose sharply to 8.4 percent, up from 7.903 percent reported last March 31. The committee made a partial award worth only P2.24 billion out of P3.6 billion in tenders.
Mendiola said the auction committee decided to accept the bids on the six-month bills in the hope that banks will no longer demand higher rates in the coming weeks.
"We expect this to be a one-time effect (of the S&P downgrade)," Mendiola said, adding that "we’re hoping that there will be no more increases in succeeding auctions."
The BTr rejected all bids worth P2.42 billion for the 364-day T-bills due to unreasonably high rates. – Des Ferriols